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St. Paul bank rolls out cards for non-traditional consumers

University Bank in St. Paul, Minn., has introduced a stored value card designed to serve unbanked and under-banked consumers. Bank officials also expect it to be useful for college students and consumers looking for safer e-commerce transactions. The stored value card, which the bank is calling the "University Personal Cash Card," features many of the benefits of cash and credit cards without the requirements needed to open a bank account - such as a government-issued ID or a minimum balance. The cards function like a pre-paid retail gift card; they can be used one time and discarded, or money can be re-loaded onto the cards for continued use.

University Bank President David Reiling said the new cards might be used, for instance, by recent immigrants to the Twin Cities who don't have traditional bank accounts because they lack proper ID, money to maintain minimum balances, or the ability to communicate in English. The new card will allow people to deposit their paychecks directly onto the card and avoid check-cashing fees. They gain the security of not carrying cash, plus nationwide access to cash through ATMs.

Reiling said his bank, which is located in an area populated with immigrants, turns down four out of five new account applications because the applicants can't meet minimum requirements.

"We also found out through our check cashing service that there are some people who simply don't want a bank account," Reiling said. "We wanted to offer a product that met them in the middle. This card, in the long run, will help them become more comfortable with financial institutions."

On paper, the cards look a lot like bank accounts. From a regulatory standpoint, however, Reiling said several differences take them out of the account category.

"It's about as close as we could come to getting something to look like a bank account without actually being a bank account," Reiling said. "For starters, the money on the cards is not FDIC insured. You cannot overdraft these cards. Once their value is depleted, that's it. The cards themselves carry no personal information about the carrier. They break the chain of identity theft."

The stored value accounts can be opened without a state-issued ID. Reiling said the bank will follow the standards laid out by the USA Patriot Act, although rules about stored value cards aren't specified in the act. As for regulatory requirements, the new cards have yet to be fully scrutinized by regulators.

"At the moment, these accounts don't have much regulation attached to them," Reiling said. "Regulation-E [which carries out the purposes of the Electronic Fund Transfer Act] doesn't necessarily apply and the regulators haven't yet determined whether these are accounts."

The Pulse EFT Network developed the backroom technology necessary to process the cards. The system itself is compliant with Regulation E. "If Reg E became applicable tomorrow, the system could handle it," Reiling said.

The under-banked

The cards cover ground usually missed by standard bank products, said Reiling. "College students, for instance, are underbanked," said Reiling. "These cards address that."

The cards also are useful for parents of college students wanting to help their children avoid the high interest rates associated with credit cards. The cards can be limited for use in specific stores. Additionally, parents will receive an e-mail notification if their son or daughter attempts to use the card at a restricted location - such as a liquor store. Online shoppers who don't want to provide credit card or bank account information through their computer can use the cards as a substitute. In the unlikely event a cyber thief was able to gain access to funds on the card, only the amount on the card could be lost. No information about the cardholder can be drawn from the cards.

The cards, which University plans to begin issuing in January, also serve a greater social good. "All of the money put into Personal Cash Card accounts will be deposited in the Urban Revitalization Fund, which will support affordable housing and small businesses in the local community," said Reiling. Money in the fund is designated for low-cost housing and business development loans. "It really is a winwin situation."

Reiling said he hopes to have 1,000 customers using the cards within a year.

Copyright NFR Communications Inc Nov 1-Nov 14, 2003
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